Annual Report and Accounts 2009 - BG Group

REVENUE RECOGNITION
Revenue associated with exploration and production sales (of crude oil and
petroleum products including natural gas) is recorded when title passes to
the customer. Revenue from the production of natural gas and oil in which
BG Group has an interest with other producers is recognised based on the
Group’s working interest and the terms of the relevant production sharing
contracts (entitlement method). Differences between production sold and
the Group’s share of production are not significant.
Sales of LNG and associated products are recognised when title passes to
the customer. LNG shipping revenue is recognised over the period of the
relevant contract.
Revenue from gas transmission and distribution activities is recognised in
the same period in which the related volumes are delivered to the customer.
For power stations that are contracted based on availability, revenue is
recognised based on the availability status of the power station to produce
at a given point in time. Where power output is sold under pool or other
contractual arrangements and where revenue is linked to the costs of
actual production, revenue is recognised when the output is delivered.
All other revenue is recognised when title passes to the customer.
EXPLORATION EXPENDITURE
BG Group uses the ‘successful efforts’ method of accounting for
exploration expenditure. Exploration expenditure, including licence
acquisition costs, is capitalised as an intangible asset when incurred
and certain expenditure, such as geological and geophysical exploration
costs, is expensed. A review of each licence or field is carried out, at least
annually, to ascertain whether proved reserves have been discovered.
When proved reserves are determined, the relevant expenditure, including
licence acquisition costs, is transferred to property, plant and equipment
and depreciated on a unit of production basis. Expenditure deemed to
be unsuccessful is written-off to the income statement. Exploration
expenditure is assessed for impairment when facts and circumstances
suggest that its carrying amount exceeds its recoverable amount. For
the purposes of impairment testing, exploration and production assets
may be aggregated into appropriate cash generating units based on
considerations including geographical location, the use of common
facilities and marketing arrangements.
DECOMMISSIONING COSTS
Where a legal or constructive obligation has been incurred, provision is
made for the net present value of the estimated cost of decommissioning
at the end of the producing lives of assets.
When this provision gives access to future economic benefits, an asset is
recognised and then subsequently depreciated in line with the life of the
underlying producing asset, otherwise the costs are charged to the income
statement. The unwinding of the discount on the provision is included in
the income statement within finance costs. Any changes to estimated costs
or discount rates are dealt with prospectively.
FOREIGN CURRENCIES
On consolidation, assets and liabilities denominated in foreign currencies
are translated into Pounds Sterling (the functional currency of the
Company and the presentation currency of the Group) at closing rates
of exchange. Trading results of overseas subsidiary undertakings, jointly
controlled entities and associates are translated into Pounds Sterling at
average rates of exchange. Differences resulting from the retranslation of
the opening net assets and the results for the year are taken to reserves.
Any differences arising from 1 January 2003, the date of transition to IFRS,
are presented as a separate component of equity.
Exchange differences on monetary assets and liabilities arising in individual
companies are taken to the income statement, with the exception of
exchange differences on monetary items that form part of a net
investment in a foreign operation. These differences are taken to reserves
until the related net investment is disposed of. All other exchange
movements are dealt with through the income statement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, deposits with a maturity
of three months or less, and other short-term highly liquid investments
that are readily convertible to known amounts of cash.
DEFERRED TAX
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the Financial Statements. Currently enacted
or substantively enacted tax rates are used in the determination of deferred
income tax. Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available, against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries, jointly controlled entities and associates,
except where the timing of the reversal of the temporary difference can
be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
LEASES
Assets held under finance leases are capitalised and included in property,
plant and equipment at the lower of fair value and the present value of
the minimum lease payments as determined at the inception of the lease.
The obligations relating to finance leases, net of finance charges in respect
of future periods, are determined at the inception of the lease and included
within borrowings. The interest element of the rental obligation is
allocated to accounting periods during the lease term to reflect the
constant rate of interest on the remaining balance of the obligation for
each accounting period.
BG Group has certain long-term arrangements under which it has
acquired all of the capacity of certain property, plant and equipment. In
circumstances where it is considered that the Group has the majority
of the risks and rewards of ownership of the plant, the arrangement is
considered to contain a finance lease.
Rentals under operating leases are charged to the income statement on a
straight-line basis over the lease term.
FINANCIAL INSTRUMENTS
Derivative financial instruments are initially recognised and subsequently
re-measured at fair value.
Derivative financial instruments utilised by BG Group’s treasury operations
include interest rate swaps, foreign currency swaps, cross currency interest
rate swaps, forward rate agreements and forward exchange contracts.
Certain derivative financial instruments are designated as hedges in line
with the Group’s risk management policies. Gains and losses arising from
the re-measurement of these financial instruments are either recognised
in the income statement or deferred in equity depending on the type of
hedging relationship. When a hedging instrument is sold or expires, any
cumulative gain or loss previously recognised in equity remains in equity
until the hedged transaction is recognised in the income statement or is
no longer expected to occur.
Movements in the fair value of derivative financial instruments not
included in hedging relationships are recognised in the income statement.
Loans held by the Group are initially measured at fair value and subsequently
carried at amortised cost, except where they form the underlying transaction
in an effective fair value hedge relationship when the carrying value is
adjusted to reflect fair value movements associated with the hedged risks.
Such adjustments are reported in the income statement.
Other financial instruments such as receivable balances are measured
at amortised cost less impairments. Liabilities associated with financial
guarantee contracts are initially measured at fair value and re-measured
at each balance sheet date.
BG Group Annual Report and Accounts 2009
67
Directors’ Report
Business Review
Directors’ Report
Corporate Governance
Financial
Statements
Shareholder
Information